Value of litigation funders’ war chests hits record highs as investors seek to bankroll UK class actions

THE value of UK litigation funders “war chests” has hit record highs of £2.2bn, as investors are increasingly bankrolling class-action lawsuits in a bid for higher returns.  

The value of assets held by third-party litigation funders, for use in bankrolling cases, has increased ten-fold over the past decade, having doubled in the past three years, as investors seek out new ways of reaping returns on their investments , according to London law firm RPC.

Hedge funds, family offices, and high net worth individuals (HNWIs), seeking “high reward” alternatives to the stock market, are increasingly starting to fund lawsuits, with a view to taking a share of any winnings.

Julian Chamberlayne, a partner at London litigation specialist Stewarts, said the money being poured into litigation funders is a result of financiers teaming up with “forward-thinking” law firms to capitalise on the rise of UK class-action lawsuits, following the introduction of new rules allowing “opt out” claims.

The funds being channelled into litigation funding comes amid a series of high-profile UK class action lawsuits involving major companies including Apple, Qualcomm, and Mastercard.

Jonathan Sachs, Partner at law firm BDB Pitmans, said the “rapid growth” in litigation funding is being driven by the ability to run “opt out” lawsuits, which have seen the  value of UK class actions increase significantly.

Tom Cottrell, a partner at Pinsent Masons, explained that some investors see litigation funding as a way of insulating their portfolios from “shocks to the market,” as he noted that the outcome of a class-action lawsuit would not be impacted by a political shock event, such as the war in Ukraine. 

Chris Ross, a partner at RPC, says: “Class actions can bring big rewards for litigation funders. They allow a funder to deploy a lot of capital at once as they are expensive cases to run, but they can also be efficient investment vehicles, because each class action can attract hundreds or thousands of claimants.”

Cottrell added that litigation insurance policies also greatly reduce the risks that investors are exposed to, whilst still offering investors the opportunity to reap attractive returns.

Ross noted that “pretty much every” UK class action now “has a litigation funder… behind it”.